adavydov7 Wrote: ------------------------------------------------------- > Lol, wish you had posted these in my thread > raghavan. I will add all of these there, and > provide discussion of what i put an why. Hope you > will comment on my reasoning and what you put > yourselves. @adavydov7 - Next time for sure
I am glad you guys are arguing over this because I’ve been having the same argument in my head since Saturday!
What sucks is that I thought I had these binomial tree questions down (I got all practice questions right). And now it looks like I messed up both questions on the exam. I calculated a risk-neutral default probability of around 62 % or so (forgot to annualize or de-annualize the vol), and then I didn’t get close to any of the answer choices. Then just for fun I did the calculation with 80 % risk-neutral default prob and once again didn’t get close. So I just had to guess on the second question, but can’t remember anymore what I picked.
Someone else compiled this… There might be a few overlaps…but I am posting will all good intentions to find some new ones. 1. Correlation question: 4 Graphs of scatterplots given - one with dots all ove the place, one V shaped, one with +ve slope and one with -ve slope correlation. I chose the one with +ve slope. 2. VAR Aggregation Question: Two investments in a portfolio with VAR of 20 and 30 individually. The portfolio VAR = 40. What is the correlation betwenn the investments - I think the answer is 0.25. 3.Normal Distribution Question: Given Mean, Standard Deviation, need to find probability that a value X lies outside a given range. Normal distribution table is given. 4. T-Distribution Question: Given sample mean, sample size and standar deviation, need to find a confidence interval of 95%. t-distribution is given for df = sample size, df = sample size - 1 and for 2.5% and 5% at the right tail. 5. Given a simple liner regression with parameter estimation for b1 and b2. Also given, standard errors for both. Need to conclude whether b2 is significant. Although the question was not straightforward and was quite wordy with double negatives. 6. Question on APT but was not able to figure out how it was to be solved. I think the regression is to be done on Global equity index and Global bond index of two markets A and B. Covariance matrix given for Gloabl Equity Index and Global bond index. Also Given are betas of Market A with both indexes and the same for market B. Also given are standard deviations of market A and market B. Need to find correlation coefficient between market A and market B. Very very tricky, had to guess. 7. Probability Tree question. Quite straight forward except the question was incomplete as for one of the nodes that direction of the move is not given. Had to guess but not my fault. 8. Question on Box spread. Not in curriculum. Had to guess again. 9. Binomial Tree Question for American Option question. Given up down ratio. Given risk free rate. Find risk-neutral probability of up movement. Also, find the value of the option. Could not get the right answer so had to guess. I guessed the one with value of the option equal to intrinsic value. 10. Share price forecasting after two time periods using Geometric brownian motion. Given are mean return = 0, a value given for standard deviation of the stock price, standard deviation of the weiner process (simulated) for the two periods. 11. Find the arbitrage profit, given forward price, current spot price, risk less rate and lease rate. 12. Qualitative question, how would you take the arbitrage profit with commodity that has lease market with cash and carry. (Need to choose an answer where the commodity is leased). 13. Multicolinearly question: Given a regression situation with multiple dependent variables with two of them correlated (I think Age and Experience of employees), need to specify why the regression might be problematic. 14. FRA valuation question. FRA is initiated on day 0. Need to find value of that FRA 10 days later (today). Given are 110 day libor, 20 day libor. Forward rate can be calculated using this for 90 day rate begining 20 days from today. As the fixed rate for for FRA is given along with the notional value, the value of FRA can be first found 110 day for now wich is then discounted to day. 15. There was a question on currency swap between USD and JPY which I thought was quite tricky. Firm pays a fixed USD rate (3.5%). Receives Japanese Libor. Need to find which way the swap value will change given 4 different scenarios of whether USD rate changes to 3% or 4% or remains the same cobmined with FX rate betwen USD and JPY changes or remains the same. Not an easy one for sure. 16. Not much question on Linda Allen, except one really straight forward operational risk question, that I am not able to remember. 17. Couple of questions on GARCH(1,1). Given set of alphas and betas, need to find which one reverts to the long run average fastest or slowest (not sure about the direction). 18. Qeustion on GARCH(1,1) volatility estimation few periods (I think 10) given all the parameters. 19. Given a zero coupon bond and par bond with maturity 3 years. I think the question was which one had higher convexity. 20. Risk Management Foundations Question: What would happen to the value of the firm if it spent on reducing diversifiable risk? 21. Risk Management Foundations Question: What would happen to the value of the firm if it spent on reducing bankruptcy risks? 22. Transition Matrix Question. Given the transition matrix. Need to find the probability of upgrade and downgrade from one of the ratings. Quite straightforward except you do not inclue the probablity of remaining in the same rating from upgrade or downgrade probability. 23. Question on country risk: Likelyhood of reschedule increses with 1. Debt Service Ratio 2. Import Ratio 3. Investment Ratio 4. volatility of exports 24. Put Call Parity question. Given everything but American call option value given instead european. As the question states, the options are non dividend paying, it does not matter. 25. Margin Account Question: Given the forard prices for a series of days, initial margin value and maintainance margin value. Need to find the amount remaining in the account after about 6 days of trading. The price keeps going down so there was two margin calls, one just the day before the final day in question. Hence, the amount in the account is initial margin minus the loss on the last trading day ($1710 or something close to that) 26 Delta Hedge Question: A hedge is put in place for a call option writer by buy a certain number of shares. The delta goes down the following day and need to find how many shares are to be sold to keep the hedge delta neutral. 27. For put and call options, when is the delta highest. Answer: When at the money. 29. Poisson Distribution Question. Given the rate, need to find cumulative probability. No calculations needed as the choices give your the formulas to pick from. 30. Maximum likelyhood question (Hull - Volatility Chapter). Need to find the expression to maximize to find the maximum likelyhood. Taking ln of the given equation gives the answer. No need to memorize the formula. 31. Question on option with a given formula Max(S-F, 0) + K or something like that. We need to break this formula down to simple parts. I thought this was more like high school algebra than FRM. 32. Cost of carry forward pricing question with monthly cost of carry paid at the end of the month. Tenure 3 months.